Commentary on culture, public policy, and urban affairs from a classical liberal perspective.

Tuesday, May 25, 2010

Toronto's G-20 Conference: Financial Boon or Boondoggle?

Ever since the ill fated 1999 WTO meeting in Seattle, there has been some debate over the merits of hosting meetings of international organizations in major cities. While some argue that there are economic spin offs from the tourism generated by these conferences, others argue that the security costs far outweigh the benefits. In the lead up to the G-20 meeting in Toronto, there has been a flurry of controversy over the price tag for conference security. The combined security tab for the G-8 and G-20 could end up as high as $900 million dollars. Unfortunately, there has been little discussion about whether the economic spin offs could justify this cost. It seems unlikely, but it would be unfair to jump to any conclusions without looking at the facts.

The tourism industry does have the potential to reap some gains from the G20. The best case scenario for the industry would see 50,000 rooms booked for the conference. Unsurprisingly, Greater Toronto Hotel Association Terry Mundell is excited. "It's a good news story for us," he claims. If we assume (optimistically) that each room goes for $300/night, the hotel industry could make $30 million out of the deal. On top of this, people will obviously be spending money while they're in town. Let's assume that these 50 thousand people consume 4 meals/day at $100/person. This would be a cool $40 million for the restaurant industry. Maybe these folks will have a few drinks. Let's budget in $100/night. After all, these are affluent folks. That's $10 million for the bars. Maybe a few souvenirs to bring back for the kids? Let's say another $10 million. And what if they need some Tylenol? Toothbrushes? Toss in another $10 million. We're up to about $100 million in direct economic benefits. But wait, people need to get to Toronto, and to get around the city. We'll be generous and throw in $100 million for airfare. Add to that $100/day in cabs, and we have another $10 million. This brings the grand total to $210 million. Far from negligible. Unfortunately, that's about double the official estimate of $100 million. Like I said, this is a best case scenario.

On the cost side of the ledger, it is important to note that the costs will be divided between the G-8 Conference in Huntsville, and the G-20 in Toronto. Let be extremely generous and assume it is an even split. Of the $833 million already announced, we'll say $400 million is going to the Toronto conference. This still leaves us with a shortfall of $190 million. Remember, this is an extremely optimistic scenario.

Here's the bad news: even under the optimistic scenario, we still haven't factored in opportunity costs. So far it has been confirmed that three Blue Jays games will be moved to Philadelphia, and the University of Toronto will shut down during the conference. In anticipation of former Jays star pitcher Roy Halliday's first return to Toronto, the team had budgeted for 90,000 fans to attend. At an average revenue of $39/fan, that's a loss of $3.5 million dollars. It's hard to say how many fans would have come into the city from out of town, but it wouldn't be at all unrealistic to say that the city is going to lose at very least another $3.5 million in spin offs.

Even without any similar cancellations, Seattle business managed to lose at least $10 million in revenue as a result of the WTO meeting in 1999 (not to mention the $2 million in property damage). Furthermore, if the G-20 wasn't going to be in Toronto, we don't know how many hotel rooms would have been rented out for other events, or whether the conference goers will crowd out other patrons from restaurants. This is the difficulty with these types of estimates. They take into account the benefits that we see, but not the unseen opportunity costs. It's hard to count a family that decided not to go on vacation, or someone who didn't bother going to the restaurant because it's too busy.

One might argue that the short term costs will be mitigated by long term benefits. After all, some people might like the city so much that they'll want to visit again. Perhaps some number of people will even want to move to the city. I had a similar experience during the G-20 in Pittsburgh last year (though haven't followed through). If we look at it this way, any shortfall could be seen as a tourism advertising expense. Will this pay off in the long run. Unfortunately it is impossible to tell.

So let's assume that the shortfall for the conference is $200 million dollars. That seems pretty reasonable at this point. Let's further assume that there will be a non-trivial long term tourism benefit to the city. In fact, let's assume they make it all back. I still don't buy into the idea of holding major international political conferences in major cities.

My biggest objection is the inconvenience to citizens of the city, which will likely include many people being caught up in violent protests, and police retaliation. No one should have to get tear gassed in the name of boosting tourism. I was there in Pittsburgh when stores were being smashed in, and the police were gassing protesters. Given that I was wise enough to stay away from the protests, I didn't personally witness the chaos. Having said that, there is plenty of footage showing the violent clashes between protesters and police. After Seattle, London, Pittsburgh, and many other cities where these conferences have ended violently, politicians should have learned their lesson. Forget tourism dollars. These conferences are about solving major economic problems. The G-8 meeting is being held in tiny Huntsville, where the G-20 originally was supposed to be held. That's how it should be. It's easier to import police to a small town than to evacuate the downtown of a major city. Hopefully it doesn't take another Seattle to impart this lesson to governments. It probably will.